Lack of Confidence, Not Capital, Is the Issue
The $700 billion rescue for the troubled global financial system foundered on a 228-205 vote Monday as both sides in the political debate feared being blamed for passing an unpopular bill.
Polls show more than 50% of Americans oppose what the pollsters call a "bailout" (but what we prefer to call a rescue). Meanwhile, a USA Today poll found that nearly a third of Americans think we're in a depression.
Concern about the financial system is fully justified. But excessive gloom is not. In the most recent quarter, GDP rose 2.1% year over year, 3.1% excluding housing. Hardly a depression. So let's not talk ourselves into one.
We, too, have qualms about the rescue effort. Washington under Democrat-led Congresses wrote the rules that made this mess possible, and we have little confidence in their ability to get us out of it.
We have even less confidence after watching Democrats try to insert things in the plan — from money for the radical community group ACORN to new taxes on Wall Street — that made no sense at all. We're glad Republicans opposed these and made the bill better.
But now it's time for all to hold their noses and vote as soon as possible on a compromise. Both the public and the investment community need to be reassured their leaders aren't dropping the ball.
Failure won't just cost billions; it will cost trillions — in lost output, a shrunken job market, smaller retirements and lost productivity. Is this the future we'll choose for ourselves? We hope not.
Republicans who voted against the bill did so for legitimate reasons. They don't like government getting too involved in the economy, and this package permits just that. But they also don't want to be blamed, as the minority party, if the deal turns sour.
That's already happening. Yes, more than 60% of Republicans voted against the rescue bill, but so did 40% of Democrats. That said, it's time for Republicans to take a deep breath, pull up their pants and help pass a bill. The nation's confidence is riding on it.
Americans must be made to realize it's not Wall Street that's being "bailed out," as the media keep putting it. It's Main Street.
The reason President Bush and Treasury Secretary Paulson moved so quickly and boldly is they fear a "seizing up" of financial markets. That means banks will stop lending to one another. It means companies that finance in the money markets — as many medium- and large-size businesses do — will be frozen out.
No lending, no business. Here's where Main Street comes in. Thousands and maybe millions will be laid off as commerce grinds to a halt. That's a real threat. Republicans will never get a perfect bill out of this Congress; compromises must be made by both sides.
We hope the $700 billion requested of Congress is enough to cover the problem. But we also note that on Monday, without Congress' interference, the Fed made $630 billion available to world financial markets. That brings this rescue to $1.4 trillion.
The ability of the nation's and the world's financial markets to finance this shouldn't be questioned. As the nonpartisan Congressional Budget Office noted Monday, the cost of any eventual rescue plan would likely be "substantially smaller" than $700 billion because of asset resales. And, around the world, there's some $70 trillion or so in investment capital, according to estimates.
We're not short on capital, as we said, but on confidence. Passing a bill, even if flawed, would go a long way to restoring the latter.